We will notify people in advance before that comes back on the calendar. Now we will start before Public Session we will have the roll call. roll call . We have a quorum. The rules for general Public Participation will be in effect. If you want to speak, please submit your name but limit to two minutes when we get to times to speak on items in general or a particular item when called. We will go to closed session. Do we have a motion from the board . Motion. Second. All in favor say aye. Motion passes. Lets figure out how to operate the fans with the doo [closed session]. We need a motion regarding closed session to report out to disclose or not disclose. Is there a motion to that effect. I would move. Motion that is seconded. All those in favor say aye. We will start with general Public Comment. We will give is kim still here . Thank you. San francisco Labor Council. I am honored to be here today, and the San FranciscoLabor Council this past year and a half two years has under gone leadership changes. I am here to introduce myself and on behalf of the executive director introduce him. We plan to work with each and every one of you over the next few months through the Public Employee committee and talking to you about how the retirement system can reflect the current values of labor here in the city. Thank you. John, go ahead. I am john. I am a 44 year member of the pension fund. I have got some good news for you Board Members today, believe it or not. Last friday the elk Care Trust Fund decided to invest in hedge funds. 400 million with the big boys investment club. I guess he was talking about you members. She said have said the big persons investment club. I gave that board five reasons why they should not invest in hedge funds. I got the impression they decided to invest in hedge funds before the Public Comment. The five reasons i gave them not to invest in hedge funds are the same five reasons i will give you to divest. Hedge funds are poorperforming, high risk, high cost investments. Second reason. 30 Large Pension Funds like the calpers and new york city are divesting. Third reason they do not give down market protection. 2008 was one of the largest down markets in history. Hedge funds lost 18 to 20 . Those less risky had a loss of 21 . Fourth reason. What is supposed to be the best invested in the world advised our pension fund two years ago index funds would be a better investment than hedge funds. So far that is right. Fifth reason and most important. The vast majority of our members dont want their money in high risk hedge funds. I guess that is all i have to say. Please use common sense and divest from hedge funds starting today. Thank you. Good afternoon, commissioners. Representing retired employee of the city and county. What i noticed in the packet was this letter inviting commissioner bridges to this government of chili in the Second Investment Forum in chili in november. It is a great honor to have a member of our board to be invited to this event. It is an apex summit. There is a lot of stuff in here. I was blown away. It is a great, great honor, and we should congratulate commissioner bridges to be so honored to attend and represent us at this great event. Congratulations. I want to make a Public Service announcement. To my fellow commissioners. They cant answer back because of Public Comment. I am the new chairman. As the new chairman of the Investment Committee, i would like to encourage my fellow commissioners to attend the Investment Committee next week. We have a series of interviews for investment managers. I do not and the president knows me as the commissioner running a show, but i dont like to tell people that have come in to present with doing business and tell them we dont have a quorum. I would encourage everybody to attend or if not give notice as soon as possible. Thank you. Let me emphasize that. Please understand, if it is not obvious. Interviewing two terms to be our general consultant which is one of the boards key roles for driving all our investments, if we do not have a quorum that decision is frozen for who knows how many months. Please, your attendance is required if we want to do one of our very important decisions. This is good cop and bad cop there. Do you want to speak on item 12 . Item 13 is pulled for today and for the foreseeable future. You have the floor, mr. Coker. Are we on item 7 . Item 5. Approval of the minutes of the september 11, 2019 meeting. Move to approve. Second. Any amendments. Public comment on item 5. Seeing none, all in favor say aye. Opposed. Item 6. Item 6. Consent calendar. Does anybody want any items on the consent calendar set aside for separate consideration. That does not require a second. A motion is in order. I move to approve. Second. Motion made and seconded. Any Public Comment . All in favor say aye. Okay. 7 investment calendar. Annual esg update. In june of last year we were presented the Strategic Plan and then we hired Andrew Collins of the director of esg investing. He has 12 plus Years Experience at state street Global Advisers where he was the esg strategist and at the standards board where he was the Technical Research director. Andrew also holds a bachelors degree from Jail University in environ yale university. He is akafst credential holder. In february of this year we also hired luke angus. Luke has 10 years investment experience. He is also a cfa charter holder, with a bachelors degree in finance and is in the latterpinings in a degree and master degree in Renewable Energy and sustainability systems. Todays update is an update on our three pillars of the strategy. Those are active ownership, investment management, and esg collaboration and communication. There is an extensive amount of information in each of those three umbrellas. I want to recognize andrew that the framework that he introduced to the board last year analyzing risk factors has been recognized by peers throughout the country. Andrew and luke have also been very helpful and informative and collaborative in bringing the investment recommendations since their hire to the board. With that i will turn it over to andrew. Thank you, bill, for that introduction. Good afternoon, commissioners. I will pull up some slides here. I am here to do what will become an annual update on the esg platform. There is a fair amount to cover. Quickly i will outline all of materials we are going through today. I believe each of the voting items will be called separately. I will outline what those are so we have a full picture what we are talking about. First, i will throw in an overview of the esg platform initially presented last june to the Investment Committee. Refresh everybody on those three pillars of that platform and provide updates what we have done over the last year or so. Next i will provide updates to investment restrictions starting with tobacco, then sudan, then firearms and thermal coal. I will wrap up the discussion talks about how we are addressing climate risk across the plan. This including investment restriction in certain oil and Gas Companies and a new analysis we have done of climate risk in the utility sector. If that sounds good, i will start with the esg program update. As we have discussed last june, i am putting this back up on the screen. This esg platform provides a structured way to integrate environmental and social and governing factors that we consider as we invest the plan. We are focusing on esg factors material to longterm Investment Performance and not focusing on any factors that are a concession or promote a social or political agenda. Our issue platform is three pillars. Pillar one is active ownership. Active shareholders. We are engaging with companies in the portfolio around esg topics material to the operation of those companies. This is primarily public equity issuers and in certain cases those companies that issue public debt. In addition, as active owners we are voting all shareholder proxies with direct ownership in companies and doing this consistent with the esg beliefs and proxy voting policy. Pillar two relates to the way we incorporate esg into the manager Due Diligence an selection and monitoring. We are not only trying to mitigate the risks in potential investments but using esg as a lens to identify new opportunities. Pillar theory lates to collaboration and communication on the important esg issues we are looking at. That is collabberating with other investments and communicating with our full range of stakeholders interested in how the plan is addressing esg considerations. I will provide an update on each of the three pillars in terms of activities we have done over the last year or so. Starting with one. Active ownership. We have made progress in building out an active Ownership Program in 2018 and 2019. On proxy voting we made the switch from isf to glass lewis. New proxy research provider. We are excited to hear about the quality of research they provide, and on all of the Shareholder Resolutions that we vote and enhanced reporting capabilitities we have as part of that platform. We made updates to the proxy voting guidelines this year to strengthen voting in a few key areas. Director diversity, dual class share structures and executive compensation practices. We voted on 1500 meetings so far in 2019, and i think a few comments on the proxy voting season this year. We have noticed a significant be decrease in shareholder proposals on environmental and social projects. An uptick in those withdrawn by the proponent who filed them. The reason they are withdrawn the management of companies have agreed to address the issues in the shareholder proposal. These are not showing up in the voting statistics. Management of company is largely being more responsive to shareholders around environmental and social issues and working to address those without letting those come to vote. On those that did vote, we supported several key proposals on climate risk management, gender pay disparities, enhanced reporting and the adoption of Board Diversity policies. We used votes to indicate kernels around the management of climate risk. We voted, for example, against three directors reelection amount exon including the c. E. O. Woods for failing to adequately address Climate Change and voted on a chartered Board Committee at exon for environmental and social issues. That is one example. In february of next year we will provide a comprehensive report on the 2019 proxy voting activities once the year ends. Moving to engagement. This year marked the start of a program to more directly engage with companies on esg topics. We contacted about 50 through letter writing and emails and ended up having in person or over the phone conversations with about a Dozen Companies on material esg issues for those companies. We focused on thermal comb companies around the plan to ex it the comb industry. We met with oil and Gas Companies to discuss climate risk and the energy transition, and we took the lead on three companies lacking women on the board of directors and encouraged them to take steps to increase the boards diversity. Then we contacted gun retailers to press them to dont more and safer responsible practices around the retail of firearms. Lastly, in the active ownership pillar. We engage order the regulatory and policy front. We lent our voice for several initiatives like investor and task force on climate related financial disclosures. Quick overview of the three pillars, working all of these areas is ongoing and will continue that through the rest of this year to 2020. Likewise, we have spent a good deal of time focusing on pillar two integrating esg throughout the management process. As we approach manager Due Diligence and make recommendations to invest, as we monitor our managers performance over time we are trying to understand two important things how they consider e sg factors. One is how they inform and and e in the Investment Strategy they were considering investing in. Two, how does the manager think about the social and governance factors in the way they are running their own firm or company. Under both questions is the belief esg consideration can and should be added to the full scope of our managers process for investing our capital. We tried to be conscious in working with investment teams. It is not a one size fits all approach. We dont have a bright line requirements about what we are expecting around the esg practices, but really we tried to work with each of our investment teams across the public and private markets to design a set of questions in a process that is getting at the most material esg questions relevant to that asset class for investing and informative of the end decision to make an investment recommendation or not. Ultimately a lot of this process is qualitative, it involves asking questions of managers, filling out questionnaires, reviewing their materials with our professional judgment. A lot of it ends up being what managers say about themselves or the investment process. The other thing we tried to do here is really to see if we can access, utilize data to validate if and how managers are actually doing what they are saying in terms of incorporating esg backers to the investment process. We are doing this at the individual strategy level but also at the asset class level and exploring ways at the full plan level. One of the things we have done recently is licensed a data set from msgi research. They are one of the premier providers in the world. We are be beginning to get comprehensive ratings for the Public Market funds right now but over time we hope to identify similar data sets for the entire portfolio. One of the things we are trying to do with the data is integrate it with the existing system to measure risk and monitor performance. These are the Style Research and we are trying to do this so we can look at esg factors alongside financial factors and not in a separate or siloed kind of way. We have licensed Carbon Emissions data for a ca Carbon Footprint. As of june 30 this year the last time we ran the data, the public equity portfolio had a weighted average carbon intensity, which is the most relevant metric, that was 22 lower than the policy benchmark. The chart on the left shows this breakdown by sector and how that emissions reduction is allocated and attributed to the sector allocations and stock selection. As you can see in the final two rows, a lot of the reduced Carbon Footprint is due to the portfolio being underway in the material sector as well as energy sector, which are the three most carbon intensive sectors in the economy. Over the last 10 years if we look back further, the public equity portfolio, the Carbon Footprint declined 40 over the last 10 years versus 35 of the benchmark. We are out pacing in terms of the Carbon Footprint reduction. In the past year we can see the billion dollars in low carbon strategies in the public equity port folio was effective in lowering the public equity carbon foot print by about 7 . The full details of the analysis are in a separate memo attached to the item. I wanted to highlight theketta aways here the keys here. We are continuing to do this thirdparty data to assess climate risk and other factors. We will talk about the climate risk piece in a little bit, but we are continuing to evaluate new ways to do this, measure the impact of our investments both in esg perspective as well as financial perspective. The other thing we have tried to do in terms of our analysis is look at the way that our investment restrictions and restricting investment in certain sectors and Certain Companies has affected the performance of the plan from a return perspective over the last 20 years when we first put in place the investment restriction for tobacco. When we first added our investment restriction in 1998, this was restricted investment in u. S. Tobacco firms. We have estimated that over time as we added additional restrictions to our portfolio, we have had a net negative impact of 64 million. The assumption here is that if we invested in a index portfolio of the policy benchmarks versus policy benchmark that excluded the securities in each of these restricted areas, this is what the cumulative impact would have been over time. I think you can see here from the chart on the left our investments in tobacco has had the largest impact. That impact fluctuated over time to be both positive and negative but an aggregate basis is negative. The investment restrictions then on an aggregate basis since 2006 have been positive by about 25 million and the other exclusions in place for a period of one to three years have been pretty legally gibel. It is in another member mo. We will another memo. We will conduct this each year and report back any new findin findings. To wrap up here with pillar three of the platform, which is really about esg collaboration and communication. Much of the work we are doing here is aligned with the work that other investors in the country and around the world are doing, and we conduct a lot of our active ownership work in collaboration with other investors. This is superimportant as a way for spurs to im fiour voice and the impact we are creating with public companies, a collective voice is much stronger than alone voice. The partnerships are listed on the left side. They include the u. N. Supported principals for responsible investment, the Investor Coalition series, 30 coalition where we engage on director, gender and racial diversity. Council of Institutional Investors and principals for responsible firearms industry which i will talk about later. And then as a reminder all of the work is built on the two key policies, one is our environmental and social Government Investment policies and procedures and esg values statement. The other is the proxy voting guidelines and principles. Those are not attached with these materials but are available for your review. I will maybe pause there before we get into the voting agenda and i am happy to answer questions on anything we discussed. Any questions . I have a comment. Very impressive. As you know when i was appointed, i was asked a lot of questions about esg by the board of supervisors and the like. I did what i thought was great Due Diligence but i had talked to bill earlier about this, and i wish i had known it wasnt as gloomy as i thought. They have taken an active step forward and andrea is coming on board with your associate. More importantly, the numbers against the benchmarking. I never get the acronyms right. They are proving out it is going in the right direction in terms of our exposure. I commend you on that and hopefully we can bring the light of day on these numbers to the public. Have you shared this with anybody assigned from the Board Members . Folks at city hall who raised these questions in the past . I met with certain beneficiaries, plan members, sort of informally, but no formal presentation to city hall. We have not provided an update since the last time we had conversations with folks apartment city hall. We had discussions with the mayors environment liasson. He traveled to a couple conferences. He sat where the people around the table commended San Francisco for the steps and how they are leading the way in many aspects. Whether the message is getting to to Mayors Office i am not sure. We believe we were contacted by mr. Jeu and he represented the Mayors Office of environment. He invited andrew as a guest of the mayor to attends a conference that otherwise we would not have been invited to. The Mayors Office is aware. Whether they had this comprehensive report, i do you want it. The materials are through early liasson on the environment. I suggest an update for other members of the board who are working on this issue. They will have seen it as radio silence from the time they brought in up. It might be good to show what is done before it becomes another issue. I have given a very informal update on these numbers to the Mayors Office that i was asked about. It is very informal. My concern is the board. I dont think they have been brought along. I echo that and maybe shipping the reports to them. The update part of it, you are right. It comes up generally in a budget committee. We would like to prevent it not coming up in the budget committee. Thank you, andrew, for the update. I have been following this closely and attended a lot of meetings with you. I would say the progress we made has been remarkable. Thank you very much to you and your team. I concur with the comments made by commissioner chu that is where the feedback will come from. Have you received mid feedback with the piece with exon and others. I know that was a big issue with the fortune 500 companies. Exon was a big standout. Familiar Institutional Investors voted the way we voted on this issue. Is there any follow up . There has been. I think the company is now making an effort to engage with investors, but no specific update in terms of an outcome to report. The other issue i know is big at cii was the executive and board representation. I am glad you joined in that the way we voted on those. For Institutional Investors this is a major issue moving forward as you know from c i i. I really appreciate the fact we joined with othertutional investors. I am looking forward to more. I knew about the pri. I am glad we are on that as well. I would like to hear more on the other piece. We will update that item when we talk about our firearms report. Perfect. Thank you. On your page 6, it goes to the middle platform. The esg investment management. Not the one on the screen right now. It will go esg investment management. On the screen before that there is a bullet integrating it to investment process across asset classes. I know we see your memos attached in investment recommendation. Those are Investment Decisions to make you through on the positive side. The question says for this work there has to be in the process like risk management. It is esg screen which is very broad. Has it resulting in stopping staff from pursuing any represent relationship or recommendations. It is certainly something we can document more comprehensivelyinmoremormore cod social considerations that we integrate and have stopped investments to make a recommendation or come to my desk. We havent done a comprehensive process to catalog that. There is so much to keep track of. The table with the performance numbers, plus and , when it is a summary it hides other work. That is why i asked. If it helps staff screen out other compliant managers, it is another way to prove those urging us to do that why the system is producing. You dont see it in the numbers. No further questions i will call for Public Comment. You Board Members that want to go to the front door to invest in firearms or tobacco or fossil fuels, you dont seem to have a problem in the backdoor in investing in hedge funds. Hedge funds will invest in anything it can make a quick profit in, even if that is investing in fossil fuels, firearms and tobacco so if you want to leaveiate that problem, all you have to do is divest from the hedge funds starting today. Thank you. Thank you very much. Commissioner driscoll and retirement board it is a long time. I am jed the regional climb see Organization Climate organization. In 2013 we started coming to your meeting. The City Residents concerned about Climate Change. I can see why your esg work is around the country. Iowa business to thank your staff from everyone who bangs their head against the wall from 2013 to 2018. This is lightyears away from where we were. The commissioner funded the idea things were courtroomy came from what you would see a staff report in the terms of quality of discourse. This is truly, seriously, a completely different body almost. The only problem is that this strategy is uniquely poorly suited for fossil fuel industry because the core business is the problem so the esg strategy and framework for esg issues more producely, i think this is the most comprehensive and amazing plan i have seen. I guess the concern here is that engagement with fossil fuel companies as we have argued for many, many years and presented reams of paper on is fairly fruitless and measured in how Many Companies replied or responded. Not in terms of what we are doing together with them. I dont see anything about active Shareholder Resolution ifs. This is something they committed to in 2015 or 2016. There is a lot to do but probably should move to level three. Thank you. Any more Public Comment . This is a discussion item only. Sorry i didnt see you. I am david page. Some of you remember me from meetings past. I started collecting my pension about five years ago and i have been to meetings here trying to advocate for esg, more esg investments. Like jed was just saying, we moved the needle in a positive direction. Since we are speaking about the esg update, i would like to comment about the s part of the esg. We have a fantastic, thoughtful report put outlined b o put outy andrew. What i would like to recommend is you do something similar. It is so easy to whip out in five minutes. I would like to see something done for the s part. Some of the characters that we are currently invested with are friends o of Valdimar Putin and those who dont share a commit commitment to human rights. There is not a lot of homework of the worst of the worst. Who are we invested in bringing us is most return on investment even though they might be engaged in torture or murter. I dont believe you can take action until you get the information. Thank you very much. I appreciate it. This is discussion only. We will continue to item 8. Action item. Annual report and recommendation on investment restriction in u. S. Tobacco companies. This is an update on level three of our esg policy. It includes a recommendation. Thank you. A quick update on the us tobacco restriction. We have had this in place since 1998, the year that u. S. Tobacco manufacturers entered the master Settlement Agreement with nearly every state attorney general. We currently are uses the recertain and data sources to determine what companies are on the restricted list. We reevaluate each year to determine if companies should cot on or off the list. This year we recommend two new companies to the restricted list, neither of which we correctly have holdings in. We also recommend a few updates to the list to reflect name changes that Certain Companies have made over the last year. We are also recommending the removal of two companies from the list. One due to the fact it is delisted. The other because it was a tobacco distributor and the distribution revenue from tobacco has fallen below the 10 threshold. It does not manufacture tobacco products. Page 2 and 3 provide updates of the market for the last year. Smoking rates continue to decline. As you are aware Electronic Cigarette usage has caused concerns for a lot of people. I can answer any questions on that. We are now monitoring the impact of risk and return for each of our investment restrictions. It will include those in each separate report in addition to the aggregate report. As a refresher we have seen since 1998 an overall negative 99 million impact what we estimate for that time period. Appendix a contains the restricted list with the suggested changes noted through the use of red font and strike through. An independent fee would be the new list that reflects what the list would be if the board votes to approve it. Board questions . I make a motion to adopt staff recommendation. Second. One question. In appendix b i dont keep track of which company has which product. This issue about jewel, are they listed in here . Yes, the group owns a 35 stake in jewel. It was motion made and seconded. I have a question. Clarification in terms of impact you are tracking for the items that we are using. Would the 88 million, the way i understand it the impact to the Retirement Fund is 88 million less than if we had been investing in those tobacco industries. What is the basis of measure you held certain securities arpositions and we use that as a basesis to determine the 88 million. Help me understand that quickly. It is all based on a set of assumptions. That is what we used to hold and divested from . Basically if we started in 1998 and invested our entire public equity port foam leo in the index tracking strategy for the policy benchmark. Versus if we invested in the same strategy without the securities on the restricted listing. The company rebalanced any proceeds or losses from these investments. It is assumption, the best we could make to conduct this analysis. When we invest with different managers, they invest some actively, some passively, we dont know if they would have known or not owned these companies. This is a worth case scenario. 90 million impacts due to compounding over 20 years of those losses. Thank you. That is only one large piece of the portfolio. Public comment . I will call for the motion. All those in fair. A. Opposed. Nine action item. And report and recommendation on investment restriction in Companies Operating in sudan. Board members this is a update on our level three of our esp policy related to targeted investment in sudan and includes a recommendation. Our investment restriction is in place since 2006. That was sort of the height of the save our four movement well into the genocide that was occurring in the region. The situation has certainly evolved and changed exception then. I will walk through the key points right now. They are relevant over the last two years. In 2017, out going president obama basically issued an executive order to lift most comprehentive against sudan. That was reaffirmed by. Trump. By and large the sanctions on sudan have been lifted. There are certain sanctions in place, particularly those that relate to visibilities relating to sanctions. The u. S. State Department Still considers sudan to be a state sponsor of terrorism. We havent said the entire government is acting in accordance with the u. S. Wishes. These are important evolution over the last two years and certainly the situation on the ground there is currency a transitiontal government. There was a military crew this. An over though of the military. There is now a joint civilian Transitional Government in place. The goal is to transition to a democratically give ilian government over the next two years. There are flairians of violence against demsock see demonstrators. The underground statement. What we recommend here sort of in recognition of the progress, we propose not to add Additional Companies to our restricted list in 2019 but to maintain our current restricted list as it is in place with the objective of monitoring if ongoing situation in sudan. If the transition of power goes as we hope, the idea would be to recommend remove moolvie by the 2021 target when this would be fully complete. This differs from 2006 when we first put this in place. It is unclear to staff and i contacted the state department to inquire what the process would be where the u. S. Government with make an official determines that genocide is halted. In the absence of understanding what that process would look like, we are recommending basically the process i described of monitoring the situation on the ground, certainly if there is a flareup of violence, the military refuses to cease tire, if u. S. Reenters sanctions we would not change the recommendation about the investment restriction. If all goes as planned and we are comfortable that would be the trigger staff would use to recommend to the board to revoke or remove the investment restrictions. The government may change the policy and operations. But the operation of the Companies May not change. Is that possible . Meaning they would continue to do business in sudan . Yes doing business the way they were doing. Correct. It had to do with companies specific, not just about how oppressive the government could be. The government was selling out assets. Our investment restriction did we late to these companies doing business with the government of sudan or providing or doing miner aleer mineral ecktransaction or provides weapons to the government of sudan. To remove that restriction would imply if we are comfortable that the government in place is democratically elected and not enacting genocide on its citizens we are comfortable that companies can do business with that government. Be prepared it may be listed company by company if the company is still a bad character. Sure. That is how i understand the two pieces of puzzle. Go ahead. Your last statement was if the government is no longer committing genocide on its people. How are you measuring the behavior of the government to make this decision . Based on your recommendation. I think the two key areas to look to are our government posture towards the government of sudan, the u. S. Possdoor as well as other un members. We can look to organizations. That would be part of your recommendation . It is important to understand both how governments are treating the government of sudan as well as parties that are maybe on the ground and have a different view of what is happening. We have looked at both of those resources. They do have differing views how far the situation has been proved. You will provide as part of your recommendation edges we have. There are other issues since the initial genocide issues. There is a lot of other governments are critical of sudan for participating in modern day slavery. There is more issues that have come through generally. The more we invest the more we increase the institutions it provides for less of that. I would like to see a report making our final recommendation based this is on our no business list for a considerable amount of time, and it is in an area of the world under a lot more scrutiny. We need to look at the overall recommendations on the number of companies doing business and what those businesses would be. Trying to interact with the sudan ease government. Public comment . Commissioner. The recommendation on the memo is twoparts. One to at some point bring back to the board an analysis of the activities in sudan and whether or not we want to change our position or policy. That is something that is just a reevaluation in the future. The second part of the recommendation is not add on seven companies under the restriction. If we were to continue on with our policy we would add seven companies to the restrictive list. Part of the recommendation is to not add those seven on for the coming year. Walk me through why we would suspend the policy when we havent decided to stop the policy yet . This is in recognition that the situation has largely improved on the ground by many accounts. Not fully resolved in terms of human rights abuses. By and large the country is stable. There is a joint civilian and military government in place. Things seem to be progressing according to the plans that have been outlined by the government